Liquidity Ratios: Current, Quick, and Cash Ratios
Two companies report the following results for the year in USD:
| Description | Company Y | Company Z |
|----------------|-----------|-----------|
| Beginning Inventory | 13,500 | 112,000 |
| Ending Inventory | 15,700 | 118,750 |
| LIFO Reserve | 3,600 | |
| Current Assets | 71,600 | 152,400 |
| Current Liabilities | 75,200 | 152,400 |
Company Y's current ratio is _most likely_:
Great!
In order to make a comparison, Company Y's LIFO reserves need to be added into current assets:
$$\displaystyle \frac{71,600 + 3,600}{75,200} = 1$$.
Company Z's current ratio is
$$\displaystyle \frac{152,400}{152,400} = 1$$.
So the companies' current ratios are equal.
Incorrect.
This answer implies that the incorrect formula was used to calculate the current ratio.
Incorrect.
This answer ignores any adjustments that need to be made to compare the two companies.
equal to Company Z's current ratio.
less than Company Z's current ratio.
greater than Company Z's current ratio.
